Few Americans realize that the tax law passed last year giving all taxpayers as much as a $600 rebate also will result in changes to itemized deductions — including those associated with homeownership.
Among other things, the Tax Relief Act of 2001 was billed as a way to eliminate an anomaly in the tax code called the marriage tax. To remedy a common situation in which married couples pay more income tax than they would if filing separately, the law expands the alternative minimum tax (AMT). Beginning in phases in 2005, with full implementation by 2010, the number of high- to middle-income taxpayers who use the AMT will, according to the congressional Joint Committee on Taxation, rise to 35 million, up from 1 million this tax season.
The upshot is that those estimated 35 million taxpayers soon will lose, among other deductions, the ability to deduct mortgage interest, real estate taxes, and home equity loans used for any purpose other than home improvement.
This will affect only higher-income households, so there is only small concern that builders will be affected by potential reduced demand.